100 Stories1958 First Steps into the Pharmaceutical Industry and Toyo Jozo

In the 100-year history of Asahi Kasei, one company has played a prominent role. Founded in 1871 as Wakita Shuzo, that company changed its name to Toyo Jozo in 1920, a little earlier than the founding of Asahi Kasei.

Toyo Jozo was involved in the production of sake, shochu, wine, and whiskey; after the war the company entered the pharmaceutical and food industries as well. The company grew into a comprehensive fermentation industry manufacturer.

Their partnership with Asahi Kasei began in 1958. Then, at about the same time as the partnership, Toyo Jozo was subjected to a hostile share buyout. Asahi Kasei, which wished to cooperate with the company, escaped the difficulty by taking a stake in the company; this was the beginning of a closer relationship between the two companies.

Asahi Kasei dispatched three executives to Toyo Jozo, one of whom was Mitsuo Ogawa. Ogawa was to be at the helm of Toyo Jozo for the next 30-odd years. This was the most important moment in the relationship between Toyo Jozo and Asahi Kasei.

The addition of Ogawa, who was skilled in management, immediately produced significant results in the early stages of Toyo Jozo’s entry into the pharmaceutical business. Ogawa had conveyed the following ideas to improve profits.

“There is a kind of drug called a testing agent in the pharmaceuticals business. If you sell testing agents as raw enzymes, they don't bring in much money. If you make it into a ready-to-use kit, the price will increase five to ten-fold. The deciding factor for end products is how to add value.”

Ogawa's idea of creating a structure to generate solid profits from each product when starting in the pharmaceutical industry became a major strategic advantage for Toyo Jozo.

In 1969, about 10 years after the business partnership, Asahi Kasei began to sell Toyo Jozo the organic compound inosin, which Asahi Kasei manufactured using its own technology. This was the starting point for the current pharmaceutical business.

Contrary to Toyo Jozo, Asahi Kasei's pharmaceutical business was born as a business that provided raw materials to pharmaceutical manufacturers, rather than manufacturing and selling final pharmaceutical preparations. This was because sales and research of pharmaceutical products require an enormous amount of human, material, and financial resources, and there were limits to what the company could do on its own.

Asahi Kasei and Toyo Jozo both achieved success in their respective fields by 1992. Then, the merger with Toyo Jozo was announced, which was said to be the biggest management strategy of the period. Chairman Kagayaki Miyazaki expressed his strong commitment to the merger, saying, “The pharmaceutical industry is the focus of chemical companies around the world, because it is a high-growth and highly profitable business.”

The impetus for this merger was the entry of Western countries into the pharmaceutical industry, which was rapidly internationalizing at the time. In order to compete with them, huge R&D expenditures of more than 10 billion yen per year were essential. While it would be difficult to survive on their own, Toyo Jozo and Asahi Kasei had annual R&D expenditures of 6 billion yen and 5 billion yen, respectively, and the merger would allow them to compete on an equal footing with the rest of the world.

In addition, Toyo Jozo had more than 500 medical representatives (MRs), 60 wholesalers, and hospitals to which it delivered pharmaceuticals, as well as human resources and sales channels. If Asahi Kasei were to build that business from the ground up, it would take more than five years and enormous expense. In addition to the size of the budget, the merger also had significant advantages.

The effects of the merger soon became apparent. Sales of the immunosuppressant drug Bredinin™, which was taken over from Toyo Jozo, more than doubled from the previous year. It was second only to Asahi Kasei's mainstay drug, the osteoporosis treatment Elcatonin. After the merger, sales of Elcatonin also grew steadily, and it became a core product, accounting for nearly half of the sales of the pharmaceuticals business.

Today, the pharmaceuticals business also deals in ethical pharmaceuticals and diagnostics. Asahi Kasei has delivered new drugs in the areas of orthopedics, emergency and intensive care, urology, immunology, and the central nervous system. Behind this development was Toyo Jozo, with which the company had strong ties as an important partner.